TALK­ING TECHNICALS

As eq­uity mar­kets fret over global econ­omy, lower highs could sig­nal end of run

Financial Mail - Investors Monthly - - Contents -

The Nas­daq is the world’s sec­ond-largest stock ex­change, be­hind the New York Stock Ex­change (NYSE), with a mar­ket cap­i­tal­i­sa­tion of more than $10-tril­lion.

It is ba­si­cally an al­ter­na­tive ex­change to the NYSE and home to sev­eral well-known global com­pa­nies. Among the heavy­weight stocks on the Nas­daq 100 are sev­eral tech stocks, which is why peo­ple of­ten think of it as a tech in­dex.

There are “non­tech” stocks on the in­dex, in­clud­ing Pep­siCo, Kraft-Heinz and Amer­i­can Air­lines, but the vast ma­jor­ity are new-age com­pa­nies, and many of those are tech stocks.

Face­book, Ap­ple, Ama­zon, Net­flix and Google all ap­pear as heavy­weight com­po­nents on the Nas­daq 100. In other words, the in­dex has mostly growth stocks, and it is not sur­pris­ing that it has out­per­formed the S&P 500 by some mar­gin dur­ing the bull mar­ket of the past nine years. The up­ward trend on the Nas­daq 100 re­mains in­tact. The 200day mov­ing av­er­age re­tains its up­ward tra­jec­tory and has pro­vided sup­port to the in­dex sev­eral times this year.

In mid-Oc­to­ber the in­dex fell sharply as the eq­uity mar­kets be­gin to fret over the head­winds the global econ­omy faces. Th­ese in­clude ris­ing US in­ter­est rates, the end of quan­ti­ta­tive eas­ing and the start of quan­ti­ta­tive tight­en­ing, ris­ing oil prices and the trade war be­tween the US and China.

The 200-day mov­ing av­er­age on the Nas­daq 100 in­dex is 7,000. That level cor­re­sponds with a lat­eral area of sup­port that is also at 7,000. It will be im­per­a­tive for the in­dex to hold above the 200-day mov­ing av­er­age if its up­ward tra­jec­tory is to re­main in­tact.

In the near term, it is pos­si­ble that the in­dex finds sup­port at the area around 7,000 and bounces to­wards the un­der­side of the 50-day mov­ing av­er­age at 7,450. If the in­dex is un­able to sur­pass the Septem­ber high of 7,700 in the months ahead, then it is pos­si­ble that a dou­ble top formed be­tween Au­gust and Septem­ber at 7,700.

Lower highs in the months ahead could sig­nal cau­tion that the bull mar­ket may be over. For now, the tech­ni­cal sup­port zone to mon­i­tor is 7,000 while re­sis­tance is at 7,450.

The oil price is top­i­cal, and not just be­cause of the fleec­ing South Africans are re­ceiv­ing at the fuel pumps. The break above $80 a bar­rel of Brent crude was sig­nif­i­cant from a tech­ni­cal per­spec­tive.

Eighty dol­lars was the high for 2018 that had been tested sev­eral times be­tween May and Septem­ber. In late Septem­ber the price broke out above $80 and surged above $86. It now ap­pears the price is be­gin­ning to con­sol­i­date af­ter the re­cent break­out.

But the break above $80 re­mains valid and the prior

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